Sears explores sale through leaseback deal

Struggling retailer Sears Holdings Corp said it was exploring the conversion of 200-300 stores to a real estate investment trust (REIT), which it would offer to shareholders to raise cash.

Struggling retailer Sears Holdings Corp said it was exploring the conversion of 200-300 stores to a real estate investment trust (REIT), which it would offer to shareholders to raise cash. (Reuters, Jim Young)

Sears explores sale through leaseback deal

(Reuters) - Struggling retailer Sears Holdings Corp said it was exploring the conversion of 200-300 stores to a real estate investment trust (REIT), which it would offer to shareholders to raise cash.

Sears shares were up 27 percent at $41.39 in premarket trading on Friday.

The company was looking to monetize a portion of its real estate through a sale-leaseback transaction, it said in a regulatory filing.

Sears said it expects to distribute to its shareholders rights to purchase common shares or other equity interests in the REIT on a pro rata basis.

Sears has been trying to raise cash to get it through the build-up to the year-end shopping season and it has repeatedly turned to Chief Executive Eddie Lampert and his hedge fund, which together own 48.5 percent of Sears.

The company has been closing stores, slashing inventory and selling off assets to generate cash after a decade of falling sales and dwindling margins. It has booked losses for nine straight quarters.

Sears also said it sold a full-line store in Cupertino, California for $102.5 million in October. Sears full-line stores are mall-based locations averaging 136,000 square feet.

It said last month it would raise as much as $625 million through an unsecured loan and equity warrants. It had earlier said it would raise about $380 million by selling a part of its stake in Sears Canada through a rights offering.

The company said that as of Nov. 6, it raised about $300 million from the Sears Canada rights offering, which closes on Friday.

The company said it would not add results of Sears Canada from the third quarter.

Sears estimated flat comparable sales and a net loss attributable to shareholders of $590 million to $630 million in the quarter ended Nov. 1. It had reported a loss of $497 million a year earlier.

Comparable sales rose 0.5 percent at its Kmart stores, while they fell 0.7 percent at Sears stores in the United States.

Sears had 1,077 Kmart stores and 793 Sears stores in the United States as of Aug. 2.

Belus Capital Advisors analyst Brian Sozzi said the estimated loss reflects Sears' obsession with a low-margin membership business model similar to Costco Wholesale Corp , Wal-Mart Stores Inc's Sam's Club, and BJ's Wholesale Club Inc, rather than making actual sales.

"…Lower quality sales are being realized at a time Sears needs quality sales," he wrote in a note.

The company will report results on Dec. 4.

Assuming both its rights offerings are fully subscribed, year-end debt would be materially lower than the $5.9 billion it had last year. At the end of the third quarter, the company had debt of $6.3 billion, Sears said.

The company also said it had about $330 million in cash and $234 million under its credit facility. (Reporting by Sruthi Ramakrishnan in Bangalore; Editing by Don Sebastian)